If $1200 is invested at a compound interest rate of 10% per annum, what will be

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Question: If $1200 is invested at a compound interest rate of 10% per annum, what will be the total amount after 3 years?

Options:

Correct Answer: $1593.00

Solution:

Total Amount = 1200(1 + 0.10)^3 = 1200(1.331) = 1597.20

If $1200 is invested at a compound interest rate of 10% per annum, what will be the total amount after 3 years?

If $1200 is invested at a compound interest rate of 10% per annum, what will be the total amount after 3 years?

Correct Answer: 1597.20

Step 1: Identify the principal amount, which is $1200.
Step 2: Identify the annual interest rate, which is 10%. Convert this percentage to a decimal by dividing by 100, so 10% becomes 0.10.
Step 3: Identify the number of years the money is invested, which is 3 years.
Step 4: Use the compound interest formula: Total Amount = Principal × (1 + Interest Rate)^(Number of Years).
Step 5: Substitute the values into the formula: Total Amount = 1200 × (1 + 0.10)^3.
Step 6: Calculate (1 + 0.10), which equals 1.10.
Step 7: Raise 1.10 to the power of 3: (1.10)^3 = 1.10 × 1.10 × 1.10 = 1.331.
Step 8: Multiply the principal amount by the result: Total Amount = 1200 × 1.331.
Step 9: Calculate the final amount: 1200 × 1.331 = 1597.20.

Compound Interest – The process of earning interest on both the initial principal and the accumulated interest from previous periods.
Exponential Growth – Understanding how investments grow over time when compounded at a certain rate.
Mathematical Operations – Applying the correct order of operations to solve for the total amount.